INTERNATIONAL TRADE

CONTENTS.
INTRODUCTION TO INTERNATIONAL TRADE. DEFINITION MEANING EXAMPLE ON INTERNATIONAL TRADE. CASE STUDY.

INTRODUCTION TO INTERNATIONAL TRADE

DEFINITION: The business of buying and selling commodities beyond national borders. The economic interaction among different nations involving the exchange of goods and services, that is, exports and imports. The guiding principle of international trade is comparative advantage, which indicates that every country, no matter their level of development, can find something that it can produce cheaper than another country. International finance, the study of payments between nations, is a related area of international economics. A summary of international trade undertaken by a particular nation is given with the balance of trade. MEANING: International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an

increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.

EXAMPLE ON INTERNATIONAL TRADE

Increased Efficiency of Trading Globally Global trade allows wealthy countries to use their resources - whether labor, technology or capital - more efficiently. Because countries are endowed with different assets and natural resources (land, labor, capital and technology), some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently produce an item, it can obtain the item by trading with another country that can. This is known as specialization in international trade. A simple example: Country A and Country B both produce cotton sweaters and wine. Country A produces 10 sweaters and six bottles of wine a year while Country B produces six sweaters and 10 bottles of wine a year. Both can produce a total of 16 units.

Country A, however, takes three hours to produce the 10 sweaters and two hours to produce the six bottles of wine (total of five hours). Country B, on the other hand, takes one hour to produce 10 sweaters and three hours to produce six bottles of wine (total of four hours.) But these two countries realize that they could produce more by focusing on those products with which they have a comparative advantage. Country A then begins to produce only wine and Country B produces only cotton sweaters. Each country can now create a specialized output of 20 units per year and trade equal proportions of both products. As such, each country now has access to 20 units of both products. We can see then that for both countries, the opportunity cost of producing both products is greater than the cost of specializing. More specifically, for each country, the opportunity cost of producing 16 units of both sweaters and wine is 20 units of both products (after trading). Specialization reduces their opportunity cost and therefore maximizes their efficiency in acquiring the goods they need. With the greater supply, the price of each product would decrease, thus giving an advantage to the end consumer as well.

Note that, in the example above, Country B could produce both wine and cotton more efficiently than Country A (less time). This is called an absolute advantage, and Country B may have it because of a higher level of technology. However, according to the international trade theory, even if a country has an absolute advantage over another, it can still benefit from specialization.

Benefits of Trading Globally International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign direct investment (FDI), which is the amount of money that individuals invest into foreign companies and other assets. In theory, economies can therefore grow more efficiently and can more easily become competitive economic participants.

For the receiving government, FDI is a means by which foreign currency and expertise can enter the country. These raise employment levels, and, theoretically, lead to a growth in the gross domestic product. For the investor, FDI offers company expansion and growth, which means higher revenues.

Case Study
The international trade accounts for a good part of a countrys gross domestic product. It is also one of important sources of revenue for a developing country. The benefits of international trade have been the major drivers of growth for the last half of the 20th century. Nations with strong international trade have become prosperous and have the power to control the world economy. The global trade can become one of the major contributors to the reduction of poverty. 1. Indian coconut oil exports to be pushed: 11/02/2013 By Daniel Hunter Coconut oil exports from India are set to surge with the Centre permitting shipments through all ports and the Coconut Development Board (CDB) accelerating its efforts to woo new exporters to enter the fray.

At present India exports 8,441 tonne, which accounts for 0.33 per cent of the total 25 lakh tonne coconut oil export dominated by the Philippines, Indonesia and Papua New Guinea. "It is true that there is a good demand for coconut oil in the Middle East and several other countries where there is an Indian population. But coconut oil is costlier than sunflower or corn oil though it is cheaper than olive oil. The fact that coconut oil price has been ruling low in India compared with global markets for a year may work in our favour," said Sunny Francis, MD of KLF Nirmal, a major exporter.

The board plans to achieve this target by catering to the huge demand in the Middle East. At present, the market is serviced by the Philippines and Sri Lanka. India is expecting to grab a fair share of this business as the export is permitted through all ports. 2. Bank delays can make or break international trade deals
11/12/2012

Exporters need banks to act fast when a deal is on the table for fear of losing international trade deals which are critical to the future of their businesses. This was among the key calls to action at the launch of a new quarterly review spearheaded by the Institute of Export (IOE) and the Association of Chartered Certified Accountants (ACCA) to take the pulse of exporters at grass roots level . PIT STOP debates are part of the IOEs drive to promote Professionalism in International Trade (PIT), a hat trick of events held in Birmingham, London and Manchester which saw businesses and advisors debate the impact of the Chancellors autumn statement. Discussions highlighted how the importance of banks employing more international trade experts at grass roots level - coupled with the need for their relationship managers to be able to signpost businesses to the right departments within the bank has never been greater.

They also revealed that exporters are seeking a greater understanding of the financial implications of international trade within the advisor groups as well as business. Key to the debates was a need for the Government to consider incentives such as tax breaks or holidays to help offset the major investment required to penetrate new markets. They are asking the business community to invest a huge amount in terms of human resource and capital to establish a new market and this is not reflected in the tax regime. There was a mixed reaction overall on whether the current levels of Government support were adequate with lack of funding dominating the agenda overall. Feedback will be communicated to Government at all levels along with industry specialists and business media channels. Said Institute of Export director general Lesley Batchelor: Feedback from our first series of events highlighted that PIT STOP debates are an effective voice for exporters to share common issues and provide calls to action which will further strengthen the IOEs ongoing lobbying drive for positive change. The debates have reinforced the urgency of addressing the lack of training and skills in-house as well as highlighting the need to equip relationship managers in banks and businesses with the training and expertise to support exporters and companies working in international trade. Time is money and waiting for a response from the bank can make or break an international deal.

BIBLIOGRAPHY
www.investopedia.com www.investorwords.com www.businessdictionary.com www.research-store.com/economywatch www.internationaltrade.co.uk